8. Welfare Provisions
8.1 Social Insurance—the Foundation of the Social Protection System
Latvia, Ukraine and Hungary, like most of the Central and Eastern European countries—
despite the well-known difficulties—inherited a relatively well-built health-care and pension system from the state socialism regimes. The system was based on the more or less guaranteed workplace, which provided citizens with considerable security.
The pension and health programs were traditionally provided and granted by the central state during state socialism. There is no need to explain in detail the funda-mental political importance of these schemes. In all three countries these schemes suffer from strong pressure because of transformed demographic, economic, political, and social conditions.
After the political and economic transition all three countries reshaped their systems in some way. In Latvia and Hungary, pension, health-care and unemployment systems are insurance based. The social protection system of Ukraine is still predominantly characterized by the structures inherited from the Soviet Union, but insurance-based pension and unemployment schemes are in operation.
The most fundamental changes occurred in the pension system in Hungary and Latvia, and in Ukraine there is a detailed plan to reform the scheme in accordance with the basic principles of the two former countries.
Table 1.9
Dates of Introduction of Acts Referring to Social Security, Unemployment and Family Benefits in Latvia, Ukraine, and Hungary and their Currently Valid Acts
Country Pension Health Accident Unemploy- Family
Insurance Insurance ment Support
Latvia first act 1922 1927 1991 1990
acts valid 1995 1995, 1993, 1995
from 1995 1996 1994,
to 1999 1995
Ukraine first act 1922 1912 1912 1921 1944
acts valid 19921955, 1955, 19921992,
from 1995 1990, 1990 1993
to 1999 1992,
1993
Hungary first act 1928 1891 1900, 1957 1938
1907
acts valid 1975, 1975, 1975, 1991 1990,
from 1995 1997 1997 1997 1998
to 1999
SOURCE: U.S. Department of Social Policy and Administration, Social Security Programs throughout the World, 1999.
... four types of new social insurance were put into force in the Ukraine from 2001. At the moment of the interview two laws have already been passed by the Supreme Council as well as signed by the President. They are: the law On Obligatory State Social Insurance against Accidents at Work and Professional Diseases Resulting in Disability to Work and the law On Obligatory State Social Insurance in Case of Unemployment. The third law: On Obligatory State Social Insurance in Cases of Temporary Disability, Birth and Burial Expenses was also passed by the Supreme Council, however the President tabled some motions and returned it to the Supreme Council for revision.
The law On Obligatory State Pension Insurance has also been passed. However, from the interviewee’s point of view, these laws have serious shortcomings, defects, and they were passed without any financial support.
SOURCE: Representative of the Ministry of Labor and Social Policy, Ukraine.
Latvia and Hungary have changed the previous pay-as-you-go based statutory pension scheme to a three-pillar pension system. In both countries the first pillar is the state compulsory, non-funded pension scheme, based on the principle of the solidarity of generations. However, the second tier is different: in Hungary it is a compulsorily funded private insurance scheme; in Latvia the funded system was created within the organiza-tional structure of the tradiorganiza-tional social insurance institution. In both countries, the
third pillar is the private voluntary pension scheme. This three-tier system has gradually been developing in Latvia and is already developed in Hungary.
In the Ukraine the current pension scheme is a still highly centralized, pay-as-you-go system. Benefits are paid late, however the severity of the problem varies among oblasts.
Sometimes, pensioners have to wait for more than six months for their benefits. The information on income and work tenure upon retirement goes directly to the Ministry of Labor and Social Policy. The Pension Fund collects the contributions and the Ministry of Communications, through the Postal-pension Bank, does the financing.
There is chaos regarding the provision of benefits and pensions. As the old proverb goes: “It is very easy to catch a fish in muddy water.” Our Verhovna Rada head can serve as an interesting example. Being a disabled person because of the Chernobyl catastrophe, he is—accordingly—
granted enormous benefits (UAH 1800) and in the meantime he goes on doing quite a difficult job. So, I ask myself: if he is disabled, then surely he cannot work? But if he can work, then on what basis does he receive benefits as a disabled person?
There is a further problem. ...Why should a pensioner living in Kyiv have the possibility to get free public transport and can do it four or say twenty four times a day? And what about a pensioner living in a remote village, who not only hasn’t ever traveled on the underground but who hasn’t even seen a bus, and he/she can use such a possibility only once or twice a week. It would be more reasonable to transfer these privileges into cash allowances. But I think that our grandees are manipulating these privileges. If old-age pensions, under the present law, should be UAH 150-200-300, and, for some reason, they are reduced to UAH 60, this being explained by the fact that there is no money in the budget, then this is a political deception.
In my view, we are actually committing genocide against our own nation. How is it possible to live on a minimum pension of UAH 27? If people cannot get as much food as is biologically necessary, then this is simply an act of exterminating people. If we say that we are a democratic socially-oriented state and even a state that recognizes peoples rights, then can anyone say what corresponding measures should be taken? I think that the State does have the necessary resources.
SOURCE: Representative of the Trade Unions Federation of Ukraine.
Table 1.10
Number and Proportion of Pensioners
Latvia Ukraine Hungary
Population 2.5 million 50.5 million 10.1 million
Number of pensioners 640,780 14.521 million 2.337 million
Pensioners as percentage of population 25% 28% 23%
Number of contributors 980,332 18.36 million 3.944 million
In all the countries studied the pension age was increased as part of the reform process.
In the area of health care Latvia, Ukraine and Hungary inherited a system that was easily accessible for almost the whole population and was free of charge. The health
indicators of the population of the region lagged behind those of the West and there were, and still are, problems concerning the efficiency as well as the quality of the provision.
The institutionalized system was supplemented with a wide range of formal and informal privileges and semi-legal cash flows. In Hungary and Latvia the health care system is insurance-based (though in different ways) and it is becoming a more and more dominant ideology to strengthen the insurance basis of the health care system; in Hungary in particular, more and more services are marketed. In Ukraine, government funded health service providers provide services: mandatory social insurance for medical care has not yet been implemented. Thus, according to several policy papers and recommendations the restructuring of the financing of the health care system is one of the most urgent tasks in the country.
With regard to the Social Insurance Fund governed by trade unions, it is a relic of the Soviet system. There was no such organization in any other country, but no one could say at that time that it was bad. Today, instead, we have serious problems regarding pension insurance. There are also serious problems in our social insurance sphere. Let us take agriculture as an example: in agriculture, there occurred a rough State intrusion and today women have no possibility to be granted leave of absence in respect of pregnancy and childbirth since the State, as if meeting agriculturists’ interests, introduced a so-called single tax, and as a result obligatory collections to the Social Insurance Fund were abolished. It was allegedly supposed that some part of this tax would be given to the Social Insurance Fund and that this Fund should be subsidized so that it could perform its functions. But having initiated this the State didn’t go ahead with this proposal.
Collections were abolished but no money was given to the Fund.
SOURCE: Representative of the Trade Unions Federation of Ukraine.
One of the main characteristics of state socialism was the security of employment together with the connected social grants and the high job-market participation (e.g.
women). At the same time, too many people worked in the agricultural and industrial sectors, and “hidden unemployment” was widespread in the analyzed countries causing a distorted employment structure and decreased economic efficiency. After the transition the growth of unemployment was a new phenomenon in Latvia, Ukraine and Hungary.
Unemployment obviously means lack of income, and it means that people have nothing to do.
Dagda has a high unemployment rate: 14%. One of the causes of the high unemployment rate may well be the fact that people are interested in registering as unemployed as in this way they have the chance of participating in paid temporary community jobs, and though the pay is low it’s still a source of income. Alcoholism in general is adding to the problem since it leads to children being neglected and people losing their jobs. Teenage alcoholism is a serious problem, too. The worst situations are in families where the adults are unemployed, and in the case of people living by themselves. In some cases, pensioners are helping their children’s families.
SOURCE: Focus-group discussion, Dagda, Latvia.
Table 1.11
Total Employment, 1989–1998 (1989=100%)
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Latvia 100 100 99 9286 77 74 72 74 —
Ukraine 100 100 98 96 94 91 93 91 89 88
Hungary 100 97 87 77 7271 69 69 69 70
SOURCE: UNECE, Economic Survey of Europe, 99/1.
In the Ukraine a large part of the labor force is employed de jure, but they do not work de facto, as they are on forced—administrative (mainly unpaid)—leave or on shortened working hours. In 1997, 2.9 million employees (21.9%) were on forced administrative leave and 2.1 million (16.1%) were on shortened working hours.
Table 1.12
Trend of Real Value of Wages 1989–1998 (1989=100)
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Latvia 100 105.0 71.9 49.0 51.8 57.9 57.7 54.1 60.7 63.0
Ukraine 100 — — — — — — — — 40.3
Hungary 100 94.3 87.7 86.5 83.1 89.1 78.274.3 77.1 79.6
SOURCE: TransMONEE database 2000, 3.0, EBRD UNICEF ICDC, Florence, Italy.
The real value of wages decreased in all three countries. The situation would be even worse if many were not involved in the gray or black economy.
In all three countries the unemployment system is based on some kind of tightening insurance-type solution. Central governmental labor-market policies use active and passive, centralized and decentralized measures as well.
Table 1.13
Trend of Unemployment in Latvia, Ukraine and Hungary
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Latvia — — — 0.9 4.5 6.3 6.4 7.0 7.5 7.6
Ukraine — — — 0.3 0.4 0.4 0.6 1.6 3.1
Hungary 0.4 0.8 8.5 12.3 12.1 10.4 10.4 10.5 10.4 9.1
SOURCE: TransMONEE database 2000.
With respect to Fund management, I admit that if we still want to build our country according to democratic principles, we should abide by such principles. As of today a new law on industrial accident insurance has been passed, fund-managing personnel have been assigned. A law on unemployment insurance has been passed accordingly, and respective managing bodies have been created on an equal and trilateral basis. Employers, trade unions, and the State have been represented. By the way, I am the Unemployment Insurance Fund director. In my opinion, the main shortcoming of the newly created Unemployment Insurance Fund is the fact that the State wants to make the insurance fund handle other matters than insurance; in other words, the Fund will have to provide people having no insurance with social services and financial support. Thus, if you and I make insurance contributions, they will not only be used to cover expenses connected with accidents that we may be involved in but also to cover other people’s expenses, people whom the State—for some reason or other—permitted to waive contributing to this fund.
Therefore, our payments as well as those of the employers will be higher. Secondly, the State undertook to finance this Fund with respect to activities not connected with insurance matters or matters that are beyond the Insurance Fund’s authority. But as of today I do know that regarding the budget for 2001 the State is not going to assign even a kopiyka or enough money at least to enable the Fund to perform public functions. As a result we will be forced to increase insurance tariffs, but workers have no spare money, their salary or wages are below the poverty rate, and employers use every rostrum to say the tax load is very high in our country. This is the main problem.
As a matter of fact our social welfare laws are so good that if they were obeyed, it would be impossible to dream of a better life—real communism. It is stated in the constitution that the State provides full employment, but today the official unemployment rate exceeds 4.5%. According to methods of the Ministry of Health Protection the unemployment rate in the Ukraine exceeds 11%. The average period of unemployment officially lasts for more than 11 months; according to unofficial data—it is more than 18 months; and according to my expert judgement in the Ukraine the unemployment rate exceeds 25%.
SOURCE: Representative of the Trade Unions Federation of Ukraine.
Relevant institutional bases are essential to support these policies. The most serious problems occur in this respect in Ukraine. The capacity of the labor market institutions is not adequate for the growing number of unemployed people or with the services to be offered to them. There are not enough employment centers and the present centers lack the necessary technical facilities.
Social assistance type of benefits as well as different forms of compulsory public work are getting a more and more important role in the system, especially in the case of long-term unemployed citizens. Zsuzsa Ferge’s4 ideas refer to Hungary, but they are relevant in the other two countries as well: “since 1991 the eligibility conditions for unemploy-ment benefit have deteriorated continuously. The replaceunemploy-ment rate decreased, the conditions of access have become harsher, and the amount of benefit has declined compared even with the minimum wage. These steps may be seen as the expression of the will to reduce the anti-incentive effect of the provisions. The side-effect, though, has been to make the situation of the unemployed extremely difficult. Poverty has hit many families, particularly those with the head of the family being unemployed.”